A triple net or NNN lease is a single-tenant arrangement that requires the tenant to pay all operating expenses associated with the property they have rented. Under a typical NNN lease agreement, the tenant promises to pay three operating expenses – insurance fee, property taxes, and maintenance cost. Whereas, the investor or landlord enjoys a regular flow of income without any liabilities. Most of the NNN tenants are big established companies and their presence guarantees a regular flow of income for a long time. This kind of agreement may lock the tenant for a period of 15-20 years.
Gross Lease Vs NNN Lease – Which one is better?
Both gross and NNN lease are entirely different lease agreements. In a gross lease, the tenant is only required to pay the property rent, which is then used by the investor to pay all operating expenses. Here, the investor is spending a part of their income on operating expenses and the tenant has no liabilities apart from covering the rent associated with the property.
On the other hand, a NNN lease requires the tenant to pay the operating expenses along with the base rent. Therefore, what would be an investor’s responsibility in a gross lease becomes the responsibility of the tenant in a NNN lease. As a result, NNN investors don’t need to spend anything from their income. Since the tenant is also responsible for paying operating expenses, the base rent under a NNN lease is slightly less than that under a gross lease.
NNN Lease Alternatives –
The biggest advantage with Net leases is that they’re quite flexible. There are a couple of options investors can choose when considering a Net lease. As we have seen, a NNN lease removes the entire burden of handling operating expenses from an investor’s shoulders. Whereas, there are some other Net leases that also provide some relief to investors. We’ll discuss two such leases here – Double and Single Net Lease.
Double Net Lease – A double net or NN lease is an agreement that requires the tenant to pay two operating expenses along with the base rent. The expenses a tenant covers under a NN lease includes property taxes and insurance fee. Whereas, the cost of maintaining or repairing the property falls in the investor’s share.
Single Net Lease – Under a single net lease agreement, the tenant is only required to pay one operating expense along with the base rent. It could either be property taxes or the insurance fee. Whereas, the investor is responsible for covering the other two expenses.
Don’t trade your old property, exchange it for a NNN property
Now that you want to get hold of a NNN property, you don’t need to sell your old investment property for it. Instead, you can exchange it for a NNN property using a 1031 exchange. Section 1031 of IRC or 1031 exchange, as it is popularly known, allows investors to defer capital gains tax on exchanging an investment property for another like-kind property. As NNN properties are also used for business, they qualify for 1031 exchange. All you need to do is enter into a 1031 exchange agreement along with a Qualified Intermediary and swap the properties.
To speak to a 1031 advisor, you can call 888-993-2835 or email us at firstname.lastname@example.org